Brazil May inflation muted, set to pick up on trucker protest

BRASILIA (Reuters) - Brazilian inflation likely held below the official target range in May, a Reuters poll of economists showed, before shifting up a gear in June due to the effects of a nationwide truckers’ strike.

Consumer prices tracked by the benchmark IPCA index probably rose 2.73 percent in the 12 months through May, according to the median estimate of 22 forecasters. BRCPIY=ECI

That would be slightly above a 2.70 percent reading in mid-May but still below the 2.76 percent rate at the end of April, as a weak economy continues to hamper the central bank’s efforts to lift inflation back to its target range.

The bank targets a 4.5 percent year-end inflation rate, with a tolerance margin of 1.5 percentage points up or down. It undershot its goal for the first time ever last year and has since cut interest rates to an all-time low.

Double-digit unemployment rates and widespread idle capacity have kept a lid on price hikes as Latin America’s largest economy slowly recovers from its deepest recession in decades.

Yet inflation is likely to get an unexpected boost in June after protesting truckers nearly paralyzed several industries in the final weeks of May.

“As this major strike is primarily a negative supply shock, gasoline and food prices have jumped,” economists at JPMorgan told clients in a note. “We think fuel prices will normalize relatively fast as the fuel trapped on the roads and at companies is delivered.”

“However, the strike appears to have generated permanent losses in the food sector, as perishable products had to be discarded and other inputs (such as livestock feed) ... were not delivered, leading to losses of livestock and at breeders.”

JPMorgan revised up their forecast for June inflation to a 0.94 percent monthly increase, from 0.62 percent previously. This would help inflation end the year at 3.9 percent, up from a previous forecast of 3.6 percent, the note said.

That would be a sharp upswing from a median estimate of a 0.30 percent increase in consumer prices in May in the Reuters poll. The release is scheduled for Friday at 9 a.m. local time (1200 GMT). BRCPI=ECI

Several economists have also downgraded their 2018 gross domestic product (GDP) forecasts in the wake of the trucker strike. Highway blockages also contributed to a smaller-than-expected trade surplus in May.